Equities and FX

“Irrational exuberance” became one of the phrases that shaped the financial lexicon of the 90s. It was how the Fed Chairman at the time (Alan Greenspan) described stock markets and the phrase remains a part of the language of financial markets to this day. The phrase of the year to date appears to be “the great rotation”, describing the move from bonds to stocks. With the Dow having hit another record high this week, are there potential implications of this for FX?

06/03/13 @ 10:40 GMT by Simon Smith, Chief Economist

The mysterious plunge in gold

Data/Event Risks • USD: Busy day for releases, with GDP for Q3 and jobless claims at 1.30pm, followed by pending home sales at 3pm. Q3 GDP may be revised higher, which could assist the dollar. US Treasury Secretary Geithner meets Congressional leaders to discuss the fiscal cliff.
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29/11/2012 @ 08:07 GMT

Decision day for Draghi

Having promised more than a month ago to “do whatever it takes” to save the euro, ECB President Draghi must show his mettle at tomorrow’s critical meeting of the ECB’s Governing Council. How he explains his much-anticipated sovereign debt-purchase plan will be particularly closely scrutinised. Draghi will almost certainly avoid explicit yield or spread targets, but at the same time must do more than simply commit to respond to occasional spikes in yields.
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05/09/2012 @ 10:27 GMT

Trading on hope

The single currency opens today just shy of a two-month high vs. the dollar and also the yen as hopes once again build ahead of the ECB meeting. There is every sign that the ECB and also political leaders have been working towards backing a more effective ECB bond-buying program to be announced on Thursday of this week. More meetings are taking place today designed to get European leaders behind the ECB’s new plan. The euro has gained on all the majors apart from sterling over the past week.
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04/09/2012 @ 07:17 GMT

Timing the euro reversal

The German IFO business confidence data used to be the key data release in the eurozone, but the sovereign crisis has firmly bumped that on the head. Economic performance in the core, whilst naturally important, does not and cannot overcome the monumental issues in many peripheral countries, especially when Germany remains adamant that the fruits of that relatively better performance are not going to seep south.
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27/08/2012 @ 09:34 GMT

AIG flees the eurozone

Further evidence of corporate sector euro-abandonment emerged from a quarterly filing by US insurer AIG. An interesting piece in today’s Daily Telegraph claimed that AIG’s holdings in German sovereign debt fell 16% in the first half of the year, and that the company also significantly reduced its exposure to Italian, Spanish and French bonds. In contrast, UK gilt holdings doubled to nearly USD 3.4bn. Over recent weeks, many major companies in Europe have been much more prepared to vocalise their misgivings regarding credit risk in Europe.
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13/08/2012 @ 09:46 GMT

Accounting for the weaker euro

The single currency has been one of the weaker performers this week and it’s not hard to find the reason why. There was a lot of volatility last week, both before and after the ECB press conference, but the single currency was supported by the belief that the ECB was shifting and planning to buy bonds in a more sustained fashion and at the shorter-end of the yield curve. From having been above 6.5% earlier in June, yields on 2yr Spanish bonds were below 3.5% earlier this week, but are now back just below 4% level.
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10/08/2012 @ 11:38 GMT

The long and short of it

After the drama of yesterday’s session, FX markets are relatively subdued in the run-up to the US employment data later today. It’s actually bond markets where the interesting moves are and FX markets should take careful note. This is because, whilst the more closely-watched 10yr yields in Italy and Spain have moved higher (Spain now around 7%), the yields on short-dated paper have fallen substantially. Spanish 2yr yields are below 4.50%, having been up to nearly 7% in July.
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03/08/2012 @ 10:24 GMT

Draghi disappointment

There was a weight of expectation upon the shoulders of the ECB chief today and overall he appears to have modestly disappointed. The price action on both the single currency (lower), in bond markets (yields higher in Spain and Italy) and stocks (Spain down more than 4% in 30 minutes) reflects this.
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02/08/2012 @ 16:00 GMT

Can Draghi walk the walk?

We said this morning (Some Hope in Europe) that we saw the ECB as having “the greatest power to elicit some confidence in markets”, but were not expecting that to happen quite so soon. The London sunshine (a rare thing) and the Olympic torch passing through the City of London (an even rarer thing) seem to have given the ECB President a renewed vocal vigour during his visit here. He pledged that the ECB “would do whatever is needed” to preserve the single currency.
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26/07/2012 @ 14:10 GMT